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Enron says UBS wins auction for trading unit

Collapsed energy giant Enron Corp on Friday said Swiss bank UBS AG agreed to take control of its key energy trading unit after a marathon auction that left rival bidder Citigroup Inc empty handed.

Enron said it chose UBS -- Switzerland's largest bank -- to bring Houston-based Enron's once-dominant trading operations back to life, a decision that still must be approved by the US bankruptcy court.

The embattled company, which sought Chapter 11 bankruptcy protection December 2 in the biggest corporate filing ever, wouldn't disclose the value of the bid or other details. UBS said Enron will retain a "residual" interest in the business and all the liabilities.

The move is aimed at restoring market confidence in what was once the world's biggest trader of gas, electricity, and other commodities. The operations, dormant since December 2, generated most of Enron's $101 billion in revenue in 2000.

Enron said documentation would be presented at a hearing in New York on Monday before US Bankruptcy Court Judge Arthur Gonzalez, who has the power to approve or reject any or all bids.

If the judge approves UBS' selection, it would be the latest in a string of acquisitions the Swiss bank has made in an effort to boost its presence in the United States. UBS merged with Swiss Bank Corp in 1998, forming Warburg Dillon Reed, which later became UBS Warburg. It also bought US brokerage giant PaineWebber in 2000.

"With UBS' 'AA' credit rating and Enron's proven industry expertise, we believe this will maximise the value of the trading operation going forward," said Kenneth Lay, Enron's embattled chief executive, in a statement.

Enron chose UBS after all-night negotiations at the New York law offices of Weil Gotshal & Manges. The winning bid was approved by Enron's 15-member unsecured creditors committee -- a court-appointed group formed to represent the banks, bondholders, trade creditors, and others that Enron owes.

"The committee could have endorsed either bidder and felt comfortable," said one committee member who spent last night in negotiations. "But the UBS bid was just a little more lucrative.

"Both have the infrastructure and the corporate culture to make this thing work, and both are fully capable of doing it in a manner that would give some confidence to the oil and gas community," said this committee member, who asked not to be named.

British oil giant BP Plc had originally expressed interest in some parts of the trading operation, but didn't pursue it, sources said.

WIDENING PROBE

Negotiations for the sale of a stake of up to 51 per cent of the trading operation continued even as Enron officials faced a widening series of damaging disclosures, regulatory probes and criminal investigations that have unfolded almost daily for a week.

On Wednesday, the Justice Department launched a criminal investigation into the Enron collapse, the latest after others by the Labor Department, the Securities and Exchange Commission, and five congressional committees, which are investigating whether Enron misled investors about its financial condition.

Enron also faces dozens of civil lawsuits alleging insider trading and other illegal activity on the part of its directors.

These investigations could be hampered by jarring disclosures by Andersen, Enron's auditor, that it had disposed of a "significant but undetermined" number of documents related to its Enron audits. For years, the accounting firm gave the company a clean bill of financial health.

If UBS prevails, it would open up a whole new area of business for UBS Warburg, the investment banking unit of the Swiss bank. The bank already trades in a number of commodities, derivatives, and other instruments but not oil and gas, a spokesman said.

"It will be a valuable extension of our worldwide trading activities," said John Costas, chief executive of UBS Warburg, the investment banking unit of UBS, in a statement.

The terms of the deal call for Enron to retain a "residual interest in the income of the business" but UBS said it would assume none of Enron's "past, current or future liabilities or trading positions."

CITI BID STILL POSSIBLE

Even though UBS was chosen as the lead bidder, Citigroup could still come back with a sweetened offer and present it to Judge Gonzalez next week. The judge, who is charged with acting to maximize the value of Enron's "estate," has the power to approve or reject any or all bids.

Citigroup declined to comment. It has never publicly acknowledged being a bidder.

Previously, up to a dozen bidders expressed interest in taking on Enron's trading operations, but only two submitted formal bids for the entire operation. The bids aren't cash offers, but only offers to take control of the operation, according to lawyers.

J P Morgan Chase also seriously considered a bid, but fell out of the process, sources said. The New York bank, like Citigroup, is one of Enron's largest creditors and also advised the company on its failed negotiations to be bought by rival Dynegy Inc for about $9 billion in stock.

Enron shares were suspended on the New York Stock Exchange all day Friday. Shares closed on Thursday at 67 cents, a fraction of their former value of $90 a share 18 months ago.

At the heart of Enron's problems were complex financial partnerships -- known as special-purpose entities -- set up by Enron executives and used to keep debt off the company's highly leveraged books.

After some deals involving the partnerships went sour, Enron in October took a $1 billion charge against earnings and cut shareholder equity by $1.2 billion.

Those moves drew market attention to the partnerships, triggering a crisis in investor confidence and credit-rating downgrades that ultimately led to bankruptcy court.

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